Financial Information and Macroeconomic Forecasts

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Summary:

We study the forecasting power of financial variables for macroeconomic variables for 62
countries between 1980 and 2013. We find that financial variables such as credit growth,
stock prices and house prices have considerable predictive power for macroeconomic
variables at one to four quarters horizons. A forecasting model with financial variables
outperforms the World Economic Outlook (WEO) forecasts in up to 85 percent of our
sample countries at the four quarters horizon. We also find that cross-country panel
models produce more accurate out-of-sample forecasts than individual country models.